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Monday, 27 June 2016

Speed fiend

Third time lucky looks a stretch for Eike Batista

Third time lucky looks a stretch for Eike Batista. The Brazilian billionaire’s EBX group may soon crash. He has bounced back from financial disaster before. But now he’s wiped out around $50 billion of value in less than three years after borrowing oodles to expand quickly. Investors share some blame. But now they’ll surely be too wary of Batista in the future.

Emblematic of the entrepreneur’s woes are the troubles at his oil exploration company, OGX – one of six publicly listed businesses under the unlisted EBX Group. On Monday it announced it was slashing capital spending, canceling equipment orders and shutting some fields in a bid to conserve cash.

It’s Batista’s own finances that are the real issue, though. Over the years he has personally borrowed almost 12 billion reais ($5.4 billion) to help build his empire, according to Bloomberg. And he used his stakes in the six companies as collateral. Now their combined total value is less than 10 billion reais, having plummeted 90 percent since November – with Batista’s share worth far less.

He’s no stranger to such precipitous drops. In 2001 he resigned as chief executive of TVX Gold after the Canadian miner lost 99 percent of its market value from its peak. Batista, who’s also a former speedboat racer, had helped the company raise more than C$1 billion from investors during his tenure.

But this time it may be harder to come back from what looks like impending defeat. He has drawn in a far larger number of investors and creditors, most of whom are staring at losses. Abu Dhabi’s sovereign wealth fund invested $2 billion in EBX in March last year, before the sharp stock market slide in its constituent companies gathered steam. More conservative shareholders include the Ontario Teachers’ Pension Plan Board. And most of Brazil’s big banks have lent him money.

They deserve their share of the blame for enabling Batista to create a complicated and inherently fragile financial structure. Granted, investors can be a forgiving bunch. Unless he can snatch some degree of victory from the jaws of defeat, though, Batista shouldn’t expect them to be too receptive next time he comes calling for cash.

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Context News

Brazil’s OGX Petroleo e Gas will return some offshore oil field prospects and scrap capital spending plans to preserve cash, the company announced in a securities filing on July 1.

The company controlled by billionaire Eike Batista is already suspending the development of the Tubarão Tigre, Tubarão Gato and Tubarão Areia offshore oil fields.

Three wells at a fourth field, Tubarão Azul, could stop producing oil as soon as next year, OGX said, adding it won’t invest any more in the area.

The Rio de Janeiro-based company also asked sister firm OSX Brasil to stop building some platforms as the Tubarão Tigre, Tubarão Gato and Tubarão Areia fields were also declared not economically viable.

Batista owns shares in six publicly listed companies through his private EBX group. These companies include an exploration firm, a shipbuilder, a port and logistics company and an electricity generator.

From 1999 to 2001 Batista was chairman of TVX Gold, a Canadian miner. He resigned in 2001 after shares of the company fell by 99 percent from their peak.

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